Retail investors just poured a record $77.4 billion into the stock market.<\/p>\n
To put this in perspective, the prior record \u2013 set in February 2000 \u2013 was just $23.7 billion.<\/p>\n
You can probably guess how that turned out…<\/p>\n
This whoosh of money into stocks happened mere months before the
\ndot-com crash that wiped out billions in shareholder wealth… and took
\nthe Nasdaq down by 78% from peak to trough.<\/p>\n
Mainstream pundits take these big inflows as a sign of something called the “Great Rotation.”<\/p>\n
No. This doesn’t refer to some new form of farming practice. It is a
\n“rotation” because supposedly there is an imminent shift of investor
\nmoney out of bonds and into stocks. And it is “great” because it will
\nsupposedly cause stocks to shoot to the moon.<\/p>\n
And it is all over the news, because you’re supposed to hop aboard and pile into the stock market<\/p>\n
Watch out. This is not only a market cliche. It’s sloppy… even dangerous… thinking.<\/strong><\/p>\n First, that retail investors are pouring record amounts of money into stocks four years into a bull market<\/strong><\/a> Second, the Great Rotation theory seriously misunderstands the nature So, although retail investors (aka the “little guy,” aka “mom and Our outlook hasn’t changed…<\/p>\n The Fed and other central banks<\/strong><\/a> But they are still unable to jump-start the middle class<\/strong><\/a> It is difficult to resist following the crowd when it starts to stampede. But it is usually prudent to do so.<\/p>\n As a long-term wealth builder, you need to be wary of chasing mature Keep this in mind as you’re barraged with bullish commentary on the so-called “Great Rotation.”<\/p>\n
\nis not exactly comforting. You already know about the last time
\ninvestors poured a record amount of their savings into stocks. They
\ncouldn’t have picked a worse moment. (We imagine the 1664-67 Tulip
\nBubble and the South Sea Bubble in 1711 saw similar big inflows the late
\nstages too.)<\/p>\n
\nof markets. For every buyer of stocks there is a seller. And for every
\nseller of bonds there must be a buyer. Assets change hands. But somebody
\nstill owns each and every outstanding stock and bond (unless they
\nsomehow slip down behind the sofa).<\/p>\n
\npop,” aka the “dumb money”) may be pouring unprecedented wads of cash
\ninto stocks, somebody somewhere is taking the other side of the trade.
\nJust as somebody somewhere took the other side of the trade in February
\n2000, in the last great stampede into a mature bull market.<\/p>\n
\nare doing a rather wonderful job of stirring up animal spirits among
\nthe financier class by evaporating yields on fixed income and pushing
\nthe yield-hungry investors further out the risk spectrum.<\/p>\n
\n\u2013 who not only can’t get a decent yield on their savings accounts
\nthanks to central bank intervention, but also have to deal with a real
\neconomy that is limping along at stall speed (or in the case of the most
\nrecent quarter, at “recession” speed).<\/p>\n
\nbull markets. And of investing alongside the mainstream. This is the
\ncore of Warren Buffett’s advice: “The less prudence with which others
\nconduct their affairs, the greater the prudence with which we should
\nconduct ours.”<\/p>\n